Moonstone Monitor: Feedback from FSB on Site Visits

Feedback from FSB on Site Visits

The Financial Services Board recently conducted a series of on-site reviews of selected Financial Services Providers (FSPs) to establish the general level of compliance with the requirements of the FAIS Act, Codes of Conduct and other requirements. This week we look more closely at how some of these issues impact on your business, and why you should take notice of them.

29% of all FSPs reviewed, mostly sole proprietors, did not have plans for business continuation in place. 71% of the FSPs had only one Key Individual and no business continuation plan which could create a problem if the Key Individual is unable to work for an extended period of time.

Very few practices that I know of are brand spanking new - most of these have been built up over time through a a lot of hard work and perseverance. The backbone of these businesses is the loyal client base built over the years on a relationship of trust, culminating in a steady stream of income.

I remember Anton Viljoen phoning me one day, asking for advice on the business format of his brokerage, as his wife was extremely concerned about what would happen to his business (and her main source of income) should he suddenly keel over.

Apart from death, there are many other permutations out there which need to be considered, not least of which is the role and responsibility of the Key Individual (KI). I attended a presentation by the FSB this morning where just one potential problem was highlighted. If the KI has to be replaced it is not merely a case of just dropping the FSB a line informing them of the change. The new KI has to be formally approved by the FSB, which takes about three months. During this period your business may not operate as there is no approved KI in the business.
We had spoken before about the death of a KI, and this would obviously make the scenario sketched above even worse. Other examples of how a license may lapse are permanent disablement or sequestration.

In the case of a sole proprietor, it is the end of the business as the license is issued in his or her name. The right business format (company or CC) could prevent this, but you need expert advice to establish this.

Which brings me to the next point raised after the site visits, namely FSPs without access to an informed compliance officer. They have gaps in their processes and procedures, resulting in "...many instances of non-compliance with the legislative requirements." The main reason for having access to a compliance officer is to pro-actively manage the risk to your business, but as the report pointed out, only 38% of the FSPs reviewed actually had risk management plans in place, which is a contravention of the General Code of Conduct. Sadly, the Code says you have to have a plan, but provides very little further detail. Almost a case of "Maak jou eie plan, broer."

One of the very first issues your CO (or compliance assistance plan) should attend to is the most suitable business format. If you do not have clarity on this issue, please attend to it sooner, rather than later.

The last point we wish to raise this week is that 50% of the Key Individuals did not meet the required Fit and Proper qualification requirements, and half again of these did not have any plans in place to meet the requirements by the relevant deadlines. "The implication is that if the Key Individual does not meet the relevant Fit and Proper requirements on the compliance date, they must stop performing the regulated functions. In such a case, where there is only one key individual the licence of the FSP will be suspended on the relevant deadline."

Please contact a training service provider in this regard. If you wish to speak to us, ask for Albert or Ronel on 0218838000, particularly if you wish to follow the "Recognition of Prior Learning" option.

Next week we look more closely at two grey areas which can have a positive or negative impact on your business, depending on whether you take the time to study it in sufficient detail. These entail the debarment of representatives and employing representatives under supervision.